LEO #1681 CONFLICT OF INTEREST; MULTIPLE CLIENTS

You have presented a hypothetical situation in which an attorney
acts as closing attorney for Lender and closes most of Lender's
loans.  Occasionally, Builder refers borrowers to Lender, and
Lender will make a loan to borrower from which proceeds are paid to
Builder.  Lender then instructs Attorney, usually on the day of
closing, to manage and disburse escrow funds by checks jointly
payable to Builder and to Borrower as particular phases of the work
are completed.  When the work is completed, Lender picks up the
check, obtains borrower's endorsement, and gives the check to
Builder.

Builder referred a Client to the Lender, who made a loan as
described above.  In this case, Client was unsuccessful in getting
Builder to complete the work, and Client requested assistance from
Attorney.  Ultimately, Attorney filed suit against Builder on
Client's behalf.  Builder has made a motion to disqualify Attorney.

Attorney has no relationship with Builder except for the holding
and disbursing of escrow funds.  Subsequent to the matter in which
Attorney filed suit, Attorney has closed other loans made by Lender
to borrowers referred by Builder.

Under the facts you have presented, you have asked the committee to
opine as to the propriety of Attorney continuing the representation
of Client in the suit against Builder.  Considering that Attorney
is holding funds in other transactions which may ultimately be
payable to Builder, does the situation change if Builder states to
Attorney that any judgment obtained will be uncollectible?

The appropriate and controlling disciplinary rules relative to your
inquiry are DR 4-101 which requires an attorney to protect
confidences and secrets;  DR 5-105 which governs the representation
of multiple clients with conflicting interests; and DR 7-101(A)(3)
requiring that a lawyer not intentionally damage or prejudice a
client during the course of the professional relationship.

The committee has previously opined that a law firm defending a
property owner from the imposition of liens against the subject
property could not continue to represent another client, a creditor
in an unrelated collection action against an interested purchaser
of the same property.  The law firm's collection action against the
interested purchaser would jeopardize assets which the interested
purchaser would otherwise use to purchase the subject property from
the law firm's other client.  Legal Ethics Opinion No. 1609. 
Similarly, in your hypothetical, the Committee believes that
Attorney cannot represent Client against the Builder, while
administering settlement funds on behalf of other borrowers, which
Client could use in satisfaction of his breach of contract claim
against Builder.  Such an action might impair the other contracts
between Builder and the other borrowers on whose behalf Attorney is
conducting closings and administering escrow funds.

In the facts you present, the committee shares your observation
that Attorney's pursuit of a breach of contract claim against
Builder on behalf of Client potentially conflicts with the
interests of other borrower-clients whose loans are being closed by
Attorney.  DRs 5-105(A), (B) and (C) state respectively that a
lawyer shall decline proffered employment and discontinue multiple
employment if the exercise of his professional judgment on behalf
of a client will be or is likely to be adversely affected by the
representation of another client.   However, a lawyer may represent
multiple clients if it is obvious that he can adequately represent
the interest of each and if each consents after full disclosure of
the possible effect of such multiple representation on the lawyer's
independent professional judgment.

In addition, by virtue of closing different loans for each
borrower, Attorney would be privy to information regarding funds
owed or to be disbursed to Builder under such loans.  Thus
Attorney, in his capacity as a creditor's attorney for Client could
use such information to his advantage in enforcing the collection
of a judgment against Builder.  Absent consent from the other
borrower-clients, such action would violate DR 4-101(B)(3) which
states that a lawyer may not use a client's confidence or secret
for the advantage of himself or a third person.  Also, Attorney's
use of such information for the benefit of one client may damage or
prejudice the other borrower-clients by financially impairing
Builder's ability to discharge his contracts with those parties. 
Use of such financial information by Attorney to the disadvantage
of the other clients would violate DR 4-101(B)(2) and DR 7-
101(A)(3). 

As with the conflict in LEO #1609, the Committee is of the view
that Attorney must withdraw from the representation of Client
because the conflict cannot be cured or reconciled with consent. 
Attorney cannot adequately represent the interests of the other
borrowers while representing Client against Builder.  However,
since the conflict in your hypothetical is potential and not
matured, Attorney may continue to handle the closings on behalf of
the other borrowers.

[DRs 4-101, 5-105, 7-101; LEOs 1585, 1609]

Committee Opinion
May 16, 1996